Consider big pharma. In 2018, the world’s ten largest drug companies spent more than $76 billion on R&D—42 percent of the global total. Yet of the fifty-nine drugs that were approved that year, only 15 percent originated in the labs of the top-ten pharma giants. Pint-sized innovators with less than $1 billion in sales accounted for 63 percent of all new drug approvals.

Pedro Cuatrecasas, an industry veteran who brought more than forty medicines to market, blames bureaucracy for big pharma’s malaise:

[Drug companies felt] confident that they could manage and mandate results with discipline, order, formality, and efficiency. Unfortunately, many of these qualities are ones that suffocate creativity and innovation. Freedom, spontaneity, flexibility, nimbleness, tolerance, compassion, humor, and diversity were replaced by bulky and inflexible organizational structures characterized by regimentation, control, conformity, and excessive bureaucracy.

As chapter 5 shows, the Million Hours Campaign led by Pushkala Subramanian at pharmaceutical giant AstraZeneca succeeded because it blended the two approaches to free up employees’ time. Top-down changes included adding steps before employees could “reply all” to more than twenty-five email recipients—users had to pause, read a warning, and do an extra click. That little speed bump saved employees from thousands of unnecessary emails.

Valeant’s approach found imitators, however. Martin Shkreli adopted an even more extreme strategy of price gouging at Turing Pharmaceuticals, increasing the cost of Daraprim, on the market since 1953, from $13.50 to $750. In 2007 generic drugs producer Mylan acquired the rights of the long-established EpiPen® – used to provide urgent relief to people with severe allergies – and over the next ten years gradually raised the price sixfold. The company paid almost a billion dollars to settle – ‘without admission of liability’ – claims that it had violated antitrust laws and defrauded Medicaid.

This is an important and underappreciated point: there is no shortage of ‘patient capital’ – institutions such as pension funds and university endowments are naturally looking for investments that may only pay off in the long term – but there is a shortage of patient individuals working in the finance sector, an industry remunerated almost entirely by transactions. The result is a constant flurry of financial activity engaging senior executives, investment professionals and advisers which rarely adds to, and often detracts from, the effectiveness and success of the underlying business. The financial pressures that motivated strategy at Merck and Valeant not only damaged the standing of the businesses and their products but also diminished the returns to their shareholders in the long run. In later chapters I will show that these are far from exceptional cases. The history of pharmaceuticals illustrates much that is right and wrong in the relationship between business and society. I have described four problem areas: the motivation and standards of behaviour of leaders of the industry; the interface between business and finance; the difficulty of constructing a regulatory regime that is relevant and effective; and the sometimes too tenuous relationships between prices, costs and values. None of these issues is unique to the pharmaceutical sector: similar questions arise in every kind of business, and the answers are necessarily specific to industry, time and place. But in this book – and another that will follow – I will illustrate principles and directions of travel.

New Product

Date Developed

Price per kg at 2020 prices

Carronade

1776

£2

SA80A2 Rifle

2000

£200

Model T Ford

1908

£27

Airbus A380

2007

£1,250

Empire State Building

1931

£1,40

Burj Khalifa

2010

£2,70

DynaTAC mobile phone

1984

£10,000

iPhone 15 Pro Max

2023

£5,000

Pin

Prince from 1821

£11

Pfizer Covid-19 Vaccine

2020

£500,000